Survey Results: Registration Statement Due Diligence


Brink Dickerson of Troutman Sanders was wondering about how practices have evolved (or eroded) for perfecting the “due diligence” defense available to directors under Section 11(b)(3) of the 1933 Act. It seems that less attention is being given to this topic over time. It doesn’t seem that long ago when the filing of a registration statement was almost universally preceded by a lengthy board call in which counsel would lead the board through the registration statement - and the work that had been done - to assure that it was accurate. Here’s a survey about what current practice is:

1. Prior to the effectiveness of a registration statement, we do this: (select all that apply)
  Answer Responses Percent  
No formal action was taken to bolster a due diligence defense 24 32.0%
Management reported to the board about the contents of the registration statement 27 36.0%
Counsel reported to the board about the contents of the registration statement 23 30.7%
Some other process was followed to bolster a due diligence defense 22 29.3%

2. If no formal action was taken to bolster a due diligence defense, the reasons include: (select all that apply)
  Answer Responses Percent  
Counsel did not alert us to this issue 4 10.8%
Director personal liability seems remote 12 32.4%
Board relied on the audit committee’s prior review of the incorporated SEC filings, which are the likely source of any liability 24 64.9%
Process takes too much time for the value that it provides 11 29.7%